Time To Close The ITC Patent Injunction Loophole

from the two-hacks-at-the-same-ball dept

For quite some time, we've been pointing out how patent holders have been using a bit of a loophole to get two separate shots at getting an injunction against other companies in patent disputes. This became even more popular after the Supreme Court ruled in the MercExchange case that injunctions banning the sale of goods often did not make sense. The loophole is that, rather than go through the court system, patent holders would go to the US International Trade Commission, claim that the goods they believed were infringing were an "unfair trade practice" and demand an injunction against importing them into the US -- effectively the same thing as a court injunction against sale (assuming the good was manufactured outside the US).

Since then, we see it's happening all the time that companies sue in the courts and use the ITC loophole as well. The ITC doesn't need to abide by the court's rules either, making it even easier to get an injunction this way. We found it quite problematic that patent holders were getting two hacks at the same ball -- especially when one of those hacks doesn't need to follow the Supreme Court's rules on when an injunction is and is not appropriate. Others disagreed with our assessment, claiming that it's not a loophole, but an important way to stop foreign companies from unfairly entering US markets.

Luckily, there's now some actual research looking into the details of how the ITC is used for these sorts of things. Eric Goldman points our attention to a law review article looking at data on how the ITC patent injunction process has been used over the past twelve years, and the results aren't pretty. It found that the ITC is used just as often between two American companies as it is used by an American company against a foreign company. Why the International Trade Commission gets involved in disputes between two domestic companies is not clear at all. It also found that many companies use both processes simultaneously, allowing them two separate attempts at getting the same injunction. Finally, the report finds that while there's only a slight increase in the likelihood of the ITC finding in favor of the patent holder, it's much more likely to grant an injunction barring the sale of a product.

As the report notes: "In the absence of coordination between the venues and with the high rate of parallel litigation, this two-track system may invite judicial waste and expose parties to the risk of duplicative litigation and potentially conflicting outcomes." Hopefully this will help Congress realize that the ITC loophole on patents needs to be closed.

Which loophole?

Manufacturers choosing to make, outside the U.S., infringing goods or components having no non-infringing use, was itself a loophole in the ability of U.S. courts to enforce U.S. laws in favor of U.S. patentholders. Having the ITC enforcement option, which runs the course faster than many U.S. District Courts, closes that loophole.
I take it you are in favor of incentivizing manufacturers to discontinue using their plants in the U.S., to make overseas, and by doing that, to minimize some risks of infringement remedies being effectively imposed by U.S. courts on their infringing activities.

Re: Which loophole?

Manufacturers choosing to make, outside the U.S., infringing goods or components having no non-infringing use, was itself a loophole in the ability of U.S. courts to enforce U.S. laws in favor of U.S. patentholders.

If it's an infringing product for sale in the US, then take it to the US courts. You shouldn't get two cracks at an injunction.

Having the ITC enforcement option, which runs the course faster than many U.S. District Courts, closes that loophole.

No, it opens a loophole giving patent holders two shots with very different rules.

I take it you are in favor of incentivizing manufacturers to discontinue using their plants in the U.S., to make overseas, and by doing that, to minimize some risks of infringement remedies being effectively imposed by U.S. courts on their infringing activities.

Uh... I'm in favor of the most efficient way of creating products and bringing them to market, such that the market is better off. Where those plants are located is really an irrelevant discussion.

Are you suggesting that it's a bad thing the the television you watch and the computer that you're using weren't built in the US? Would you have minded paying twice as much for them while having lower quality products?

Re: Re: Which loophole?

wow you say the US makes lower quality products?
without any data or research to back that up.
some americans take pride in te work that do.
I'm not even an american and your comment hurt me.
the US will never rebound if people belive the poison that spews from your mind.

There's yet another loophole...

One thing you didn't mention, Mike, is that the ITC cannot award monetary damages. The only remedy available through the ITC is an exclusion order (order barring importation of infringing articles). You also don't get a jury trial in the ITC, it's decided by an administrative judge, which tends to cut back on some of the more baseless lawsuits you typically see patent "trolls" bring. On the other hand, things come to trial very quickly in the ITC, which can rack up huge attorneys' fees very quickly. It puts a lot of pressure on defendants to settle early on the litigation.

But there's another well-established "loophole," which wasn't mentioned in the article that's been recognized for more than twelve years. And it has nothing to do with the recent changes in the rules for granting injunctions. Here is what it is:

If I sue you for patent infringement in the ITC, and I lose the case because my patent is either not infringed or declared invalid (or both), or for whatever the reason may be that I lost, I can go ahead and sue you in U.S. district court for infringement of the exact same patent based on the exact same products. This is because an adverse ITC decision is not binding on me or the district court, i.e., the doctrines of "res judicata" and "collateral estoppel" do not apply. This effectively gives me two bites at the apple by allowing me to subject the defendant to the expense of two different cases.

Much Ado About Nothing

According to the cited paper, there were 219 cases in the 12 and 1/2 years of the study. Of these cases, 187 were completed. Of the 187 cases, in only 45 cases was a violation found, which is slightly less than 4 cases per year.

Considering that the U.S. has thousands of unique items imported EVERY DAY, from a huge array of companies, ITC complaints seem infinitesimally small.

Further, compare the number of ITC complaints per year (about 17.5 per year) to the number of patent complaints filed in federal courts every year (about 2700 per year). ITC cases reflect about 0.65% the number of federal patent cases.

I suspect that Congress has far more things to worry about right now than the 3.6 items each year that the ITC stops from coming into the U.S.

Why domestic companies are involved...

ITC actions are not exactly against a company, they are against a product. Until an item has been passed through customs, the item is legally not "on" U.S. soil. When a company purchases or makes a product in a foreign country and then tries to bring the product onto U.S. soil, customs and the ITC have authority to halt the product at the border. That the product was produced by a domestic company is irrelevant.